PROCUREMENT RISK FRAMEWORK

1 PROCUREMENT Risk FrameworkGuidance Note on ProcurementThe PROCUREMENT risk FRAMEWORK emphasizes the need to treat and manage risks after identification and highlights risk management as an ongoing activity. This guidance note describes ADB s PROCUREMENT risk FRAMEWORK for managing PROCUREMENT risk throughout the PROCUREMENT cycle. Effective risk management minimizes impacts on project objectives from adverse events. The guidance note describes how risks are identified, assessed, and managed at the country and sector/agency levels, and how those risks are used as inputs into the identification, assessment, and management of risk at the project level during PROCUREMENT planning and through contract the Asian Development BankADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members 49 from the region.

2 Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical DEVELOPMENT BANK6 ADB Avenue, Mandaluyong City1550 Metro Manila, DEVELOPMENT BANKPROCUREMENT RISK FRAMEWORKGUIDANCE NOTE ON PROCUREMENTDECEMBER 2021 ASIAN DEVELOPMENT BANKPROCUREMENT RISK FRAMEWORKGUIDANCE NOTE ON PROCUREMENTDECEMBER 2021 Creative Commons Attribution-NonCommercial-NoDerivs IGO license (CC BY-NC-ND IGO) 2021 Asian Development Bank6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, PhilippinesTel +63 2 8632 4444; Fax +63 2 8636 rights reserved. Published in 2021. ISBN 978-92-9269-265-0 (print), 978-92-9269-266-7 (electronic)Publication Stock No. TIM210527-2 DOI: The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

3 ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or work is available under the Creative Commons Attribution-NonCommercial-NoDerivs IGO license (CC BY-NC-ND IGO) By using the content of this publication, you agree to be bound by the terms of this license. For attribution and permissions, please read the provisions and terms of use at # CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it.

4 ADB cannot be held liable for any claims that arise as a result of your use of the contact if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB to ADB publications may be found at : In this publication, $ refers to United States and Figures ivAbout This Publication viAbbreviations ixExecutive Summary xI. Introduction 1II. Purpose 4 III. The PROCUREMENT Risk FRAMEWORK 5IV. Risk Assessment and Treatment 12V. Risk Management in the PROCUREMENT Cycle 14VI. Resources for Further Review 17 Appendixes 1 Risk Assessment Tables 18 2 Country and Sector/Agency PROCUREMENT 20 Risk Assessment Process 3 Country PROCUREMENT Data Sheet 28 4 Country PROCUREMENT Assessment Tool 33 5 Indicative Terms of Reference for a Country 41 and Sector/Agency PROCUREMENT Risk Assessment 6 Sector/Agency PROCUREMENT Assessment Tool 43 7 Report Outline for a Country and Sector/Agency 59 PROCUREMENT Risk Assessment 8 Potential Risks from a Country and Sector/Agency 63 PROCUREMENT Risk Assessment 9 PROCUREMENT Risk Assessment and Management 67 Plan Template 10 Concept Stage PROCUREMENT Risk Rating Tool 68 11 Sector Market Analysis Examples 70 TABLES AND FIGURESTABLES1.

5 Applicability of Risk Management Tools 7 to Organizational/Entity Level 2. Responsibilities for Risk Management in the PROCUREMENT Cycle 93. A Comparison Between CSPRA and MAPS Assessments Risk Likelihood Risk Consequence Risk Rating Matrix Risk Rating Key 19A2. Example of How a PROCUREMENT Weakness May Convert to a Risk 26A3. PROCUREMENT Data Table Country PROCUREMENT Assessment Tool Country PROCUREMENT Assessment Tool Scoring Guide Sector/Agency PROCUREMENT Assessment Tool Sector/Agency PROCUREMENT Assessment Tool Scoring Guide 49A10. Concept Stage Project PROCUREMENT Risk Rating Tool 64A11. Sector Bid Evaluation Report Analysis Example 72vTables and FiguresFIGURES1. Risk Management s Contribution to Value for Money 22. The ADB PROCUREMENT Cycle 33. The PROCUREMENT Risk FRAMEWORK 54. The Risk Management Process 65. Risk Management through Planning, Bidding, and Implementation 116.

6 Risk Treatment Options 137. The Country and Sector/Agency PROCUREMENT 15 Risk Assessment ProcessA11. Sector Contract Awards Data Analysis Example 70 List of Guidance Notes for the 2017 ADB PROCUREMENT Policy and the PROCUREMENT Regulations1. Value for Money2. PROCUREMENT Risk Framework3. Strategic PROCUREMENT Planning4. PROCUREMENT Review5. Alternative PROCUREMENT Arrangements6. Open Competitive Bidding7. Price Adjustment8. Abnormally Low Bids9. Domestic Preference10. Prequalification11. Subcontracting12. Consulting Services Administered by ADB Borrowers13. Nonconsulting Services Administered by ADB Borrowers14. High-Level Technology15. Quality16. Bidding-Related Complaints17. Noncompliance in Procurement18. Standstill Period19. State-Owned Enterprises20. E-Procurement21. FRAMEWORK Agreements for Consulting Services22. public private Partnerships23. Contract Management24. Fragile, Conflict-Affected, and Emergency Situations25.

7 Sustainable public Procurement26. Use of Merit Point Criteria for Bid EvaluationABOUT THIS PUBLICATIONIn April 2017, the Asian Development Bank (ADB) approved its new PROCUREMENT FRAMEWORK , the ADB PROCUREMENT Policy: Goods, Works, Nonconsulting and Consulting Services (2017, as amended from time to time); and the PROCUREMENT Regulations for ADB Borrowers: Goods, Works, Nonconsulting and Consulting Services (2017, as amended from time to time). These replace the former Guidelines on the Use of Consultants (2013, as amended from time to time) and PROCUREMENT Guidelines (2015, as amended from time to time). The PROCUREMENT policy and the PROCUREMENT regulations address the PROCUREMENT activities of project executing agencies and implementing agencies on projects financed in whole or in part by a loan or grant from ADB, or by ADB-administered funds. ADB designed the 2017 PROCUREMENT policy to deliver significant benefits and flexibility throughout the project PROCUREMENT cycle, as well as to improve project delivery through a renewed focus on the concepts of quality, value for money (VFM), and fitness for note is part of a series of guidance notes published by ADB in 2018 to accompany the 2017 PROCUREMENT policy and the PROCUREMENT regulations.

8 Each note discusses a topical issue for borrowers (including grant recipients), bidders, and civil society under the new FRAMEWORK (see list below). The guidance notes cross-reference each other frequently and should be read in conjunction. All references to guidance notes pertain to these notes. The notes may be updated, replaced, or withdrawn from time to This PublicationviiADB PROCUREMENT reforms intend to ensure VFM by improving flexibility, quality, and efficiency throughout the PROCUREMENT cycle (see illustration below and the Guidance Note on Value for Money). VFM is part of a holistic PROCUREMENT structure with three support pillars: efficiency, quality, and flexibility. The two key principles of transparency and fairness weave across all elements of the is an important element of VFM. When a project is delivered promptly or when a process is completed rapidly, greater value is created for all stakeholders. For example, a road project completed early provides economic benefit, security, or other value to the community it serves.

9 It increases the return on investment to the executing agency and accelerates the project and payment cycle to the successful bidder. Likewise, a project delivered late loses significant value. When considering VFM in the context of PROCUREMENT , pay attention to anything that (i) shortens the PROCUREMENT cycle time frame or (ii) accelerates delivery of the development for MoneyThe effective, efficient, and economic use of resources, which requires an evaluation of relevant costs and benefits along with an assessment of risks, nonprice attributes, and/or total cost of ownership as appropriateEfficiencyQualityFlexibility Decreased transaction costs Increased skills Increased high-level technology usage Improved PROCUREMENT planning Support and encouragement of e- PROCUREMENT systems Contract management support Prompt resolution of complaints Improved developing member country PROCUREMENT process Improved PROCUREMENT planning Governance Contracts with clear performance criteria Minimal number of complaints Improved ADB processes Open competitive bidding Decentralization Accreditation for alternative PROCUREMENT arrangements Principles-based decisions Improved PROCUREMENT planning Delegation Bids with weighted proposal criteria FairnessAbout This PublicationviiiObjectiveThis guidance note is intended to assist readers by elaborating on and explaining ADB s 2017 PROCUREMENT policy and PROCUREMENT regulations for borrowers (including grant)

10 Recipients). This note identifies additional information for the reader to consider when applying ADB s PROCUREMENT policy and PROCUREMENT regulations to their circumstances. Living DocumentThis guidance note is intended to be a living document and will be revised as sure to check the ADB Business Center website for the latest version and updates, Reader In many circumstances, readers are expected to use this guidance note in a manner unique to their needs. For consistency throughout the suite of guidance notes, the following assumption is made about the reader:The reader is a professional involved in activities financed in whole or in part by an ADB loan or grant, or by ADB-administered funds. FAQsFrequently asked questions, clarifications, examples, additional information, links to training, and other useful resources will be made available on the ADB website. Be sure to check the ADB Business Center website for more information, and Order of PriorityThis guidance note explains and elaborates on the provisions of the PROCUREMENT Regulations for ADB Borrowers: Goods, Works, Nonconsulting and Consulting Services (2017, as amended from time to time) applicable to executing (and implementing) agencies under sovereign (including subsovereign) projects financed in whole or in part by an investment loan from ADB ( , excluding ADB results- or policy-based loans),ADB-financed grant (excluding ADB-administered technical assistance and staff consultancies), or by ADB-administered funds.